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Jury, Not Judge, Must Decide Meaning of Representations

Kenneth Duvall

Last month, New York’s intermediate appellate court reversed a grant of summary judgment in favor of plaintiff MBIA Ins. Corp.[1] MBIA, an insurer of RMBS trusts and a common plaintiff in this type of litigation, had sued Credit Suisse, the sponsor of the trusts.

The trial court had ruled as a matter of law that a “No Monetary Default” representation and warranty (R&W) encompassed borrower misrepresentation. The trial court also had ruled as a matter of law that the “Mortgage Loan Schedule” R&W guaranteed not just that the Mortgage Loan Schedule (MLS) had accurately transcribed information from the loan file, but also the underlying accuracy of the information in the MLS.

In a unanimous panel opinion authored by Judge Manzanet-Daniels, the Supreme Court Appellate Division reversed on both points. The Court held that both issues should be decided by the jury.

Regarding the “No Monetary Default” R&W, the Court followed its prior decision in Ambac Assur. Corp. v. Countrywide Home Loans, Inc. interpreting a materially-identical R&W.[2] The First Department had concluded that “the better course is to hold a trial to inquire into and develop the facts to clarify the relevant legal principles and their application to the [R&Ws].”[3]

Regarding the “Mortgage Loan Schedule” R&W, the Court again looked to previous case law, this time turning to Delaware. In Bear Stearns Mtge. Funding Trust 2007-AR2 v EMC Mtge., LLC, the Delaware Chancery Court had held that a trial was required to determine whether a materially-identical MLS Rep guaranteed “underlying truthfulness,” as opposed to “accurate transcription.”[4]

Both of these R&Ws,”No Monetary Default” and “Mortgage Loan Schedule”, have been frequently litigated in mortgage cases, and likely will be again in the future. The MBIA v. Credit Suiss ruling provides defendants (whether sponsors, originators, or others) with additional authority to resist summary judgment and, at a minimum, argue their cases to the fact-finder at trial.


[1] MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 2018 BL 330243 (App Div, 1st Dept Sept. 13, 2018).

[2] 151 AD3d 83 (1st Dept 2017)

[3] Id. at 89

[4] 2014 Del Ch LEXIS 300, *5 (Del. Ch. 2014).

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